02146cam a22002297 4500001000600000003000500006005001700011008004100028100002500069245008400094260006600178490004100244500001800285520125300303530006101556538007201617538003601689710004201725830007601767856003701843856003601880w3220NBER20161209214814.0161209s1990 mau||||fs|||| 000 0 eng d1 aCasella, Alessandra.10aParticipation in a Currency Unionh[electronic resource] /cAlessandra Casella. aCambridge, Mass.bNational Bureau of Economic Researchc1990.1 aNBER working paper seriesvno. w3220 aJanuary 1990.3 aWhen countries of different sizes participate in a cooperative agreement, the potential gain from deviation determines the minimum power that each country requires in the common decision-making.

This paper studies the problem in the context of a monetary union - multiple countries sharing a common currency - whose very existence requires coordination of monetary policies. In the presence of externalities in the decentralized equilibrium with national currencies, it is shown that a small economy will in general require, and obtain, more than proportional power in the agreement. With a common currency, this is equivalent to a transfer of seignorage revenues in its favor. With national currencies such transfer would not obtain, and the small country would be even more demanding. Without additional unconstrained fiscal instruments it would be impossible to sustain coordination with fixed exchange rates. When the number of potential countries in the union is large, it is not generally possible to prevent deviations from individual countries or from coalitions. The currency union might emerge as a mixed strategy equilibrium, but the probability of deviation rises sharply with the number of countries and of possible coalitions. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w3220.4 uhttp://www.nber.org/papers/w322041uhttp://dx.doi.org/10.3386/w3220